Smiths Group PLC · LSE:SMIN
Smiths — H1 2012 Earnings Presentation
50 slides from Smiths's earnings presentation, Mar 14, 2012
Slide 1: Interim Results 14 March 2012
Interim Results 14 March 2012 Bringing technology to life investor.relations@smiths.com www.smiths.com
Slide 2: Forward-looking statements
This document contains certain statements that are forward-looking statements. They appear in a number of places throughout this document and include statements regarding our intentions, beliefs or current expectations and those of our officers, directors and employees concerning, amongst other thin
Slide 3: Introduction
Introduction Philip Bowman Chief Executive Smiths Group plc Interim Results 2012 | 3
Slide 4: Delivering against our operational priorities
Delivering against our operational priorities Drive top-line growth through a focus on new products and emerging markets Investment commitment in new products and emerging markets (+350 heads) – Strongest pipeline of new product launches; emerging market sales up 24% Deliver the performance improvem
Slide 5: Promoting responsibility: increased focus delivering improvements
Promoting responsibility: An increased focus is delivering improvements Recordable & lost time incident rates continue to improve Solid progress on environmental targets** Lost time incident rate 2.58 • Energy: Recordable incident rate * 11% reduction 1.89 • Greenhouse gases: Incident rate 12% reduc
Slide 6: Financial review
Financial review Peter Turner Finance Director Smiths Group plc Interim Results 2012 | 6
Slide 7: Interim results 2012
Interim results 2012 £m Headline* Statutory 2012 2011 2012 2011 Continuing activities reported underlying** Sales 1,415 1,372 3% 1% 1,407 1,372 Operating profit 244 239 2% 2% 132 208 Margin 17.2% 17.4% (20) bps - 9.4% 15.2% Pre-tax profit 217 212 2% 2% 111 189 Basic EPS (p) 40.4 39.9 1% 21.4 35.7 Fr
Slide 8: Underlying headline sales and profit performance
Underlying headline sales and profit performance Sales Operating profit growth growth John Crane +13% +24% Smiths Medical -1% +4% Smiths Detection -11% -36% Smiths Interconnect -6% -29% Flex-Tek +2% +36% Group +1% +2% Smiths Group plc Interim Results 2012 | 8
Slide 9: Headline profit progression 2011 to 2012
Headline profit progression 2011 to 2012 • Price: Positive in John Crane and Flex-Tek; negative in Medical and Interconnect • Volume: Benefits from John Crane and Flex-Tek offset by declines in Smiths Detection, Interconnect and Medical – including operational gearing effects • Mix: Negative mix in
Slide 10: Group cash conversion
Group cash conversion £m (for continuing activities) 2012 2011 Headline operating profit 244 239 Changes in working capital (51) (68) Share based payment 5 6 Capital expenditure (Property, plant & equipment) (21) (18) Depreciation 28 32 Development costs & other intangibles (net of amortisation and
Slide 11: Improved returns on capital from John Crane, Flex-Tek and Medical
Improved returns on capital from John Crane, Flex-Tek and Medical 12 months to 28 Jan 2012 12 months to 29 Jan 2011 30.0 25.1% 25.0 23.8% 20.6% 20.5% 20.0 17.3% 17.4% 16.6%16.0% 16.0% % 15.0 12.8% 13.0% 10.0 7.6% 5.0 0.0 Smiths Group Flex-Tek John Crane Smiths Medical Smiths Smiths Detection Interco
Slide 12: Reconciliation: Headline operating profit to statutory profit
Reconciliation: Headline operating profit to statutory profit £m Headline operating profit 244.0 Restructuring programmes (11.4) Acquisitions/disposals (1.1) Litigation provision: John Crane, Inc. (15.6) Reduction in discount rates (6.9) Increased provision (8.3) Litigation with insurers (0.4) Litig
Slide 13: Exceptional items: Restructuring programme delivering benefits
Exceptional items: Restructuring programme delivering benefits Group-wide restructuring FY08-13 Costs to date Total planned costs Total planned savings £52m £60m £70m £m H1 2012 savings Savings to date H2 savings H2 costs Group-wide 5 61 6 4 Detection performance improvement FY12-14 Costs to date To
Slide 14: Pensions: Deficit increased to £459m, lower discount rates
Pensions: Deficit increased to £459m, lower discount rates Deficit movement since 31 July 2011 Cash contributions £m FY 2012 Deficit at 31 July 2011 (199) Scheme contributions c. £110m: Foreign exchange (6) - Smiths Industries PS £36m Return on assets (13) - TI Group PS £50m Contributions (net of se
Slide 15: Strong balance sheet supports investment in acquisitions and growth
Strong balance sheet supports investment in acquisitions and growth Interest split Currency split Debt split Net debt £m Borrowings 1,099 USD Liquid resources (142) Fixed Euro Bank Floating other Public Net debt 957 £m Weighted average life of debt is 4.3 years Credit Rating: 300 BBB+ (stable)/Baa2
Slide 16: Operational review and priorities
Operational review and priorities Philip Bowman Chief Executive Smiths Group plc Interim Results 2012 | 16
Slide 17: Delivering shareholder value – key themes
Delivering shareholder value – key themes Investing in growth: leading-edge technologies and emerging markets Driving operational improvements and cost efficiencies Delivering strong cash generation to reinvest in top-line growth Value enhancing acquisitions to support growth and returns Smiths Grou
Slide 18: John Crane: Delivering sales growth, improving margins and returns
John Crane: Delivering sales growth, improving margins and returns Headline 2012 2011 Reported U’lying 2012 H1 Sales % Sales £469m £412m 14% 13% 1 First-fit OEM 37% Op profit £98m £79m 25% 24% Aftermarket 2 Oil, gas & petrochem 39% Margin 20.9% 19.0% 190 bps 3 Chemical and pharma 8% 4 Distributors 7
Slide 19: John Crane: Investing in future growth: new products and markets
John Crane: Investing in future growth: new products and markets Product diversification strategy is supporting growth initiatives • New product areas – bearings and filters (16% of rotating equipment) – grew 14% • Turbo Components and Engineering acquisition completed; building aftermarket Increasi
Slide 20: John Crane: Outlook
John Crane: Outlook Outlook • Strong order book supports second half growth • Margins will benefit from higher volumes and cost savings • Reinvest savings in growth opportunities: new products and markets Smiths Group plc Interim Results 2012 | 20
Slide 21: Smiths Medical: Delivering margin growth in a challenging market
Smiths Medical: Delivering margin growth in a challenging market Headline 2012 2011 Reported U’lying 2012 H1 Sales % Sales £417m £418m 0% (1)% 1 Medication delivery 28% 2 Vital care 41% Op profit £98m £94m 4% 4% 3 Safety devices 31% Margin 23.5% 22.6% 90 bps Margin improvement despite tough operatin
Slide 22: Smiths Medical: Investing in growth opportunities
Smiths Medical: Investing in growth opportunities Committed to accelerating new product launches: investment of £16m or 3.8% of sales (2011: 3.7%) • Medfusion™ 4000 infusion pump – February launch in US • CADD®-Solis VIP ambulatory pump – Europe • CorrectInject®, neuraxial safety device – UK Expandi
Slide 23: Smiths Medical: Outlook
Smiths Medical: Outlook Outlook • Developed markets are likely to remain challenging • Focus will remain on investment in new product development • Investing in sales and marketing; increasing emerging market exposure • Cost savings benefits will be prioritised for reinvestment Smiths Group plc Inte
Slide 24: Smiths Detection: Performance improvement programme – achievements to date
Smiths Detection: Performance improvement programme – achievements to date • Announced closure of sales and admin site at Morristown, NJ – complete by year end • Aligning manufacturing footprint to customer needs – focusing on 3 hubs: - Americas, Europe and opening a new site in Asia • Reducing cost
Slide 25: Smiths Detection: Variable order flow has affected sales
Smiths Detection: Variable order flow has affected sales Headline 2012 2011 Reported U’lying 2012 H1 Sales % Sales £220m £248m (11)% (11)% 1 Transportation 44% 2 Ports & borders 15% Op profit £20m £34m (41)% (36)% 3 Military 10% 4 Emergency responders 5% Margin 9.3% 13.9% (460) bps 5 Critical infras
Slide 26: Smiths Detection: Investing in future growth through new products
Smiths Detection: Investing in future growth through new products • Total spend of £20m; 9.1% of sales (including customer-funded R&D of £3m) • Strong pipeline of new products – highest ever number of launches Recent launches • RadSeeker: $4.5m order for US Domestic Nuclear Detection Office • GUARDI
Slide 27: Smiths Detection: Outlook
Smiths Detection: Outlook Outlook • Sales affected by security regulations, government budgets and incidents • FY12 sales expected to be at a similar level • Margins will benefit from cost savings and operational efficiencies • Large recent contract wins support strong order book for delivery over t
Slide 28: Smiths Interconnect: Challenging trading environment affected performance
Smiths Interconnect: Challenging trading environment affected performance Headline 2012 2011 Reported U’lying 2012 H1 Sales % Sales £200m £186m 7% (6)% 1 Connectors 36% 2 Microwave 43% Op profit £26m £34m (23)% (29)% 3 Power management 21% Margin 13.1% 18.1% (500) bps 3 Sales benefit from Power Hold
Slide 29: Smiths Interconnect: Investing in growth drivers
Smiths Interconnect: Investing in growth drivers Acquisition of Power Holdings Inc. (PDI) for $235m completed • Performing in line with expectations • Brings complementary products focused on power distribution, conditioning and monitoring • Expands into fast-growing end markets: data centres and al
Slide 30: Smiths Interconnect: Outlook
Smiths Interconnect: Outlook Outlook • Defence market is likely to remain challenging • Wireless network investment will increase longer term demand but H2 is expected to be weaker • Rail, test and automation will be mixed • Margins will benefit from restructuring savings • Integration of Power Hold
Slide 31: Flex-Tek: Margins benefit from operational leverage
Flex-Tek: Margins benefit from operational leverage Headline 2012 2011 Reported U’lying 2012 H1 Sales % Sales £109m £107m 2% 2% 1 Fluid Management 35% 2 Construction 26% Op profit £17m £12m 36% 36% 3 Heat Solutions 23% 4 Flexible Solutions 16% Margin 15.5% 11.6% 390 bps Margins up 380 bps from highe
Slide 32: Flex-Tek: Outlook
Flex-Tek: Outlook Outlook • Order book for aerospace customers has positive outlook • Residential construction and appliance markets remain uncertain • Any upturn in these markets will support earnings expansion Smiths Group plc Interim Results 2012 | 32
Slide 33: Operational priorities for 2012
Operational priorities for 2012 Deliver the performance improvement programme benefits in Smiths Detection Launch new products from the divisional pipelines to drive top-line growth Increased investment in emerging market sales to deliver faster sales growth Sustain strong cash conversion to fund gr
Slide 34: Questions & Answers
Questions & Answers Next capital markets day: Interim Results Smiths Detection Investor Day 14 March 2012 London, 29 May 2012 Bringing technology to life investor.relations@smiths.com www.smiths.com Smiths Group plc Interim Results 2012 | 34
Slide 35: John Crane £894m
John Crane John Crane is a world-leading provider Sales £m of engineered products and services 894 790 786 for the major process industries. These include the oil and gas, power 626 532 generation, chemical, pharmaceutical, pulp and paper, and mining sectors. Paul Cox, President 2007 2008 2009 2010
Slide 36: John Crane
John Crane Delivering engineered solutions that keep process plants running, John Crane enhances customer productivity by providing advanced technology industrial products and performance-enhancing services backed by an exceptional global network. Customers: John Crane serves oil & gas and Competito
Slide 37: John Crane: Volumes and price drive margin; investing in sales growth
John Crane: Volumes and price drive margin; investing in sales growth £m 2012 2011 reported underlying Sales 469 412 +14% +13% Operating profit 98 79 +25% +24% Margin 20.9% 19.0% +190 bps ROCE 23.8% 20.5% +330 bps Operating profit £m • Volume: Driven by both aftermarket and OEM, 2010/11 79 particula
Slide 38: Smiths Medical £838m
Smiths Medical Smiths Medical is a leading supplier of Sales £m 858 838 specialist medical devices and 834 equipment for global markets. 691 703 Srini Seshadri, President 2007 2008 2009 2010 2011 Contribution to 2011 Sales by sector 2011 Group sales: 30% £838m 3 1 Contribution to 2011 1 Medication d
Slide 39: Smiths Medical
Smiths Medical In medication delivery, our devices help treat cancer patients and provide relief to those in pain. Our vital care products reduce hospital-acquired infections, manage patients’ airways before, during, and after surgery, maintain body temperature and assist reproduction through IVF th
Slide 40: Smiths Medical: Efficiencies deliver further margin improvements
Smiths Medical: Efficiencies deliver further margin improvements £m 2012 2011 reported underlying Sales 417 418 0% (1)% Operating profit 98 94 +4% +4% Operating margin 23.5% 22.6% +90 bps ROCE 17.3% 16.0% +130 bps • Volume: Portfolio rationalisation, pressure on Operating profit £m medication delive
Slide 41: Smiths Detection £510m
Smiths Detection Smiths Detection is a world-leading Sales £m 574 designer and manufacturer of sensors 509 501 510 that detect and identify explosives, 438 weapons, chemical agents, biohazards, nuclear & radioactive material, narcotics and contraband. Mal Maginnis, President 2007 2008 2009 2010 2011
Slide 42: Smiths Detection
Smiths Detection Our technology helps customers in the global transportation, ports and borders, critical infrastructure, military and emergency responder markets. We have the most comprehensive range of detection technologies in the world, including trace detection, millimetre-wave, infra-red, biol
Slide 43: Smiths Detection: Variable order flow affecting sales and margins
Smiths Detection: Variable order flow affecting sales and margins £m 2012 2011 reported underlying Sales 220 248 (11)% (11)% Operating profit 20 34 (37)% (41)% Margin 9.3% 13.9% (460) bps ROCE 7.6% 13.0% (540) bps Operating profit £m • Volume: Decline driven by military and ports & 2010/11 34 border
Slide 44: Smiths Interconnect £379m
Smiths Interconnect Sales £m 379 Smiths Interconnect is a recognised 340 leader in technically differentiated 318 electronic components and sub- 261 systems providing signal, power and 230 microwave solutions. Ralph Phillips, President 2007 2008 2009 2010 2011 Contribution to 2011 Sales by sector 20
Slide 45: Smiths Interconnect
Smiths Interconnect We design and manufacture products that connect, protect and control critical systems for the global wireless telecommunications, aerospace, defence, space, medical, rail, test and industrial markets. Our products are application-specific and incorporate innovative technologies t
Slide 46: Smiths Interconnect: Margins affected by challenging trading environment
Smiths Interconnect: Margins affected by challenging trading environment £m 2012 2011 reported underlying Sales 200 186 +7% (6)% Operating profit 26 34 (23)% (29)% Margin 13.1% 18.1% (500) bps ROCE 12.8% 17.4% (460) bps Operating profit £m • Volume: Telecoms offset military and connector 2010/11 34
Slide 47: Flex-Tek £221m
Flex-Tek Flex-Tek is a global provider of Sales £m engineered components that heat 222 221 and move fluids and gases for the 213 206 212 aerospace, medical, industrial, construction and domestic appliance markets. Tedd Smith, President 2007 2008 2009 2010 2011 Contribution to 2011 Sales by sector 20
Slide 48: Flex-Tek
Flex-Tek Our flexible hosing and rigid tubing provide fluid management for fuel and hydraulic applications on commercial and military aircraft, deliver fuel gas and conditioned air in residential and commercial buildings, and provide respiratory care for medical applications. Flex-Tek heating elemen
Slide 49: Flex-Tek: Volumes and pricing offset inflation pressures to grow margins
Flex-Tek: Volumes and pricing offset inflation pressures to grow margins £m 2012 2011 reported underlying Sales 109 107 +2% +2% Operating profit 17 12 +36% +36% Margin 15.5% 11.6% +390 bps ROCE 25.1% 20.6% +450 bps Operating profit £m • Volume: Gains in aerospace and 2010/11 12 construction sectors
Slide 50: Net debt increased by £228m driven by acquisitions and dividends
Net debt increased by £228m driven by acquisitions and dividends £m 2012 Net debt at start of period (729) Operating cash (after capex etc.) 201 Interest and tax (66) Exceptionals/Pensions (54) Free cash flow 81 Dividends (98) Acquisitions/disposals (168) Financing including net investment hedges (1